Suppose we were to raise the tax on gasoline and diesel used as motor fuels by $.50/gallon every six months for the next three years. We could immediately end the $.50/gallon subsidy to ethanol producers without discouraging production. We could remove the stupid restrictions on importing ethanol made from sugar since there’s be plenty of demand for both foreign and domestic ethanol. We could stop the tariffs which protect the sugar growers as they find a market – as corn has already done – as a fuel source.
Even more expensive biofuels would become economical without subsidy. The government could stop playing the pork barrel game of trying to decide which alternative fuels to subsidize how much and let the most efficient producers replace gasoline.
Putting aside the politics, there are still two enormous problems with this proposal:
- The tax is extremely regressive – the working poor pay much more of their income in gas tax than the rich.
- The government will withdraw huge sums from the economy and legislators’ll invent vote-buying programs to spend it.
Both problems could be solved, however, by reducing or eliminating social security taxes – also regressive – at lower income levels, maybe after keeping a little of the surplus to make sure that social security and Medicare are actually funded for when the baby boomers retire.
Absolutely, though Kitchen Linker will argue that a gas tax is not regressive on a global and long term scale.